FT : Temasek Thriving Under Ms. Ho

Wednesday, May 16, 2007

…..Temasek’s rising regional prominence is the main achievement of Ho Ching, who marks her fifth year as the group’s chief executive this month.  Temasek’s shareholder equity has climbed from S$75bn ($49.5bn) in early 2002 to S$129bn as of March 2006, the latest period for which Temasek has released data.  With Singapore’s Straits Times Index, which mostly consists of Temasek companies, having risen by 25% since then, analysts expect Temasek’s value has increased to at least S$150bn.  The group’s expansion strategy is being studied and copied by other Asian governments – including China, Japan, South Korea, Taiwan and Thailand – which are planning to set up similar organisations that will use swelling foreign exchange reserves to make overseas corporate investments.  Until Ms Ho’s appointment, Temasek’s main focus was Singapore.  Founded in 1974, the agency was created to gather together state businesses controlled by the finance ministry, which is still Temasek’s sole owner.  Over the next two decades, it fostered the growth of its local businesses – including Singapore Airlines and DBS Bank, and created new ones, mainly in the telecoms and IT sector.  By the early 2000s, Temasek companies were reporting sluggish returns on investment that made them targets for restructuring.  The market value of the group’s holdings fell from about S$100bn in 2000 to S$60bn by March 2003 before Ms Ho’s reforms took effect.  The naming of Ms Ho as Temasek’s chief was controversial. A former head of Sin-gapore Technologies, a Tem-asek subsidiary, she is also the wife of Lee Hsien Loong, Singapore’s prime minister and finance minister.  Her position close to political power was seen as giving her vital clout in overhauling Temasek.  She established performance benchmarks and introduced a measure of accountability and transparency into the secretive organisation.  “She shook up the estab-lish-ment, replacing management that was not focused on shareholder value and forcing Temasek companies to let go of marginal businesses,” says a strategist at a foreign investment bank in Singapore.  Analysts believe that Singapore’s stock market boom is also the result of Temasek companies raising dividend payments, which has attracted investors but also provided cash for Temasek’s accelerated overseas expansion.  Ms Ho decided that Temasek must play a direct role in an effort to reduce its dependence on a maturing home market.  She identified banking, telecoms, energy and healthcare as among several industries that would grow on the back of a rising Asian middle-class, while setting a target that two-thirds of Temasek’s total assets should be foreign, up from less than half when she arrived.

It is in the banking sector that Temasek has made its biggest impact, beginning with the takeover of Indonesia’s BII and Danamon banks in 2003.  It emerged as the single largest foreign investor in China’s state banks, with stakes in Bank of China and China Construction Bank.  Last year, it concluded its biggest single deal by buying a 11.5% stake in Standard Chartered Bank for an estimated $4bn.  The banking investments have produced large paper profits and are seen as one reason why Temasek reported an average 28% rise in total shareholder returns for each of the past three fiscal years…..The biggest black mark on Ms Ho’s record was Tema-sek’s troubled $3.8bn purchase of the Thai telecom group Shin Corp from the family of former Thai prime minister Thaksin Shinawatra last year.  The deal triggered a political crisis that led to Mr Thaksin’s ousting by the military, while the value of Temasek’s investment was nearly halved.  The episode showed that Temasek faces greater potential risks overseas than in its stable home environment.  An adviser to the group believes it is underestimating the pitfalls in its international strategy.  “I’m surprised how little Temasek knows about the countries in which it invests,” he says.  The true test for Ms Ho will be when regional markets turn sour.

Reference : http://www.ft.com/cms/s/383dd364-0349-11dc-a023-000b5df10621.html

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